AFC - High Growth - Low p/e. (New code CAF)

Alliance Finance Corporation - High Growth, Low p/e.

AFC makes its money by financing the ever-increasing cost of insurance to businesses. Businesses benefit by spreading the (often large) costs of insurance through the year, providing smoother cashflow.

AFC is a small company, market cap only $16.5 million, which currently has 6% of the $2 billion p.a. IPF market in Australia. (IPF = insurance premium funding.) It has just gone ex-dividend.

Financials are as follows:

Price 41c
Eps HY to Dec 2003 (Actual) 3.3cps
EPS FY 2004 (Forecast) 5.0cps
p/e FY 2004 (Forecast) 8.2
Equity per share June 2003 29.4
Return On Equity 2004 17%
Note 17% ROE is calculated using 2004 forecast earnings and 2003 actual equity.

http://www.alliance.net.au/html/shar...ouncements.asp

One of the attractive features of the business is that, with ever rising insurance premiums, AFC automatically gets ever increasing revenue. A couple of worthwhile articles:

http://www.smh.com.au/articles/2003/...?from=storyrhs

http://www.theage.com.au/articles/20...849341059.html


Since listing on ASX, profits have been lower than forecast in prospectus. Nevertheless, profit growth is attractive, especially given the low price earnings ratio.

AFC is now expanding from Perth into new offices in Sydney and Brisbane.

Alliance believes the insurance premium funding market will continue to grow as a result of many factors, including:

• Customers’ increasing knowledge, and acceptance, of IPF as an attractive product (market maturity).
• The greater size, overall, of the insurance market, due to natural market growth and increases in premiums.
• The increasing penetration of IPF as a percentage of the entire insurance premium market, due in
part to the expectation that premium increases will ‘squeeze’ business cash flows.


There is plenty of competition out there, but it has not prevented AFC from carving out an attractive and growing share of the market. Here are comments from the web-sites of other companies in the IPF market:


Hunter “Hunter is the largest, most experienced premium funder in Australia and New Zealand with an annual turnover well exceeding one billion dollars.” (Compare with AFC rough forecast revenue for FY 2004 of $200 million)

http://www.hpf.com.au/internet/hpf.nsf/docs/About

Finlease "If you're like most of our clients, your general insurance premiums keeping going up and up. If you also have to carry public liability and/or workers compensation, these costs have shot through the roof. Some clients now face annual insurance charges in the neighbourhood of $100,000. And there's no end in sight.”

http://www.finlease.com.au/ipf.html


East West "You know forty percent (40%) of our clients utilize our Premium Funding Facility and we believe the percentage will grow to sixty percent (60%) over the next few years.

This form of finance to spread your insurance costs is fast becoming an attractive alternative to the up front costs. These payment plans allow you to spread your insurance costs over a number of months releasing important cash flow that you could use for building your business further. Talk to one of our team on how we can design a plan to suit your needs."

http://www.eastwestinsurance.com.au/ewib14.htm


Macquarie Premium Funding

How do you benefit?
#61623; Multiple business premiums can be covered by a single MPF loan
#61623; Fast, simple application process
#61623; Fixed, low interest rates
#61623; No ongoing loan service fees
#61623; Improved cash flow management
#61623; Tailored payment plan
#61623; Policy generally the only security required.

http://www.macquarie.com.au/au/busin...um_funding.htm

I believe AFC is good value and I have bought.

[i]Readers are reminded to do their own research before risking

I agree with you Alban,it seems a good story,sat on my watchlist for all of last year gradually rising,but I never bought,was at 39c 12 months ago rising to a high of 45c a week or two ago,before dropping to 41c this week,I don't think it ever dropped below the 39c price.RV from
my system is 23.2 so is just a little under the 25 buy level,but still rather good with the level of dividend.

Thanks for the post Alban - looks promising - I now have some homework for the weekend!

cheers

certainly worth a close look. like KD washing the car will have to be delayed.

In this financing sector I did buy,and still hold CIY,which has gone well over the past year but has I expect had most of its run,and will probably consolidate round present price for some time. I have a liking for this type of company,they are able to grow without large demands for capital, and pay dividends while they are doing it.

Hopefully AFC might be the same as CIY. Another sector I like for the same reasons is that of recruitment,they can as well grow rapidly from the funds they generate themselves.

Thanks for your responses OldRider, KD and pajama. It's interesting to read your comparison with CIY, OldRider because I also have a financial-services comparison in mind when I look at AFC.

Although they're not in the same business, I tend to liken AFC to DPC in New Zealand, a finance stock that noodled along on p/e's of 6 and 7 before the market began taking notice of continual earnings growth. DPC now on a p/e of 10 and, because earnings have grown too, a very healthy return has been provided to moderately patient shareholders with the shareprice doubling in the last year.

AFC will not be another ATR, going through the roof in the space of a few months, but I believe those willing to hold for up to two or three years will be well rewarded with both healthy dividends and above average capital growth, in a manner similar to DPC.

Readers are reminded to do their own research before risking their shirts investing in common stocks.

Still haven't done all my homework but have downloaded some reading. So will reserve comments for now except to note nice dividend at present and agree that, if they can deliver, this would be the time to be in. The graphs above must be from the prospectus (?) as AFC did not do so well in 2003 .... you mention that I think. I like this sector and RCD is one that has been/still is on my list. Had a look at CIY performance the other day and wondered whether anyone here had a dollar on this a few years back? Stunning performance.

cheers

Pajama - someone with fewer posts here than me!

i like AFC. fits my criteria which includes div yield, low PE, directors having a big stake and ability to grow business without constant need for capital. the business model is sound and i like the way they manage their risk by simply cancelling insurance policies and getting premium refunded if they are not paid. exposure to any one client would be very low. leasing/laptop side of business seems a bit poor - they should focus on the insurance funding. none held as yet but order in. a potential growth stock without growth pricing - thanks alban for bringing this up.

the fundamentals look good for this one...thanks for your post Alban...we need more quality posts like the above.

my only concern looking at the chart is the apparent lack of liquidity....but might be one to add to the long term portfolio.

Hi Risk, thanks for the kind words :)

Quote:

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quote:Originally posted by KD

The graphs above must be from the prospectus (?) as AFC did not do so well in 2003 .... you mention that I think.

---

Hi KD, the graphs are from the annual report, not the prospectus. AFC did very well for FY2003, just not as spectacularly well as forecast in the prospectus - the overambitious nature of the prospectus was, in my view, a negative against AFC.

Full Year to June 2003, results were

New lending $125 million (up 51 per cent)
Total revenue $7 million (up 30 per cent)
Net profit after tax $1.33 million (up 28 per cent)
Earnings per share 3.54 cents

Interim earnings for the six months to Dec 2003 are up 53% on the previous interim and, at 3.3 cps, are very close to the earnings for the whole 12 months to June 2003.

I believe full year profit for 2004 will be in the range 5.0 to 5.3 cps yielding a p/e of 7.7 to 8.2.

Thanks for taking the time Alban.

I'll let the HC crowd know about your selection.


Gerry

as a matter of interest Alban, one of my many criteria is how regular a stock trades. This stock in the past few weeks has not traded on at least 2 days and therefore on that basis alone has missed out on selection despite the fundementals. However if on the basis of your (and others) post, interest picks up and apart from fundementals certain technical criteria are satisfied also, it may appear within a week or two, however what my PC selects at any given time is mostly out of my jusristiction / control. I do not interfere with the process of selection because the many rules orginally created and tested over time have been set reasonable benchmarks of achievement. For example another rule I have is no stocks over $8-00 (which may change to $9-00 in up to 12 months or so). AFC satisfies this rule because it is well under that.

Alban

Thanks for bringing this stock to my attention.

Bought 20,000 today for a long term hold.

I like the business.

Good reoccuring income streams, good growth prospects with the eastern seaboard coming online, directors and management hold large chunk of stock and the company operates in a growth sector.

Costs look contained and are largely fixed.

Low PE as you mentioned...

Microcap that probably does not get the recognition it deserves.

David

Thanks Gerry, I don't subscribe to HC. Has there been much of a response? Certainly the buying depth has been building on AFC for a couple of days now, so interest appears to be growing.

I know what you mean greenpastures. If you're trading with reasonably big stakes, this is a difficult stock to work with. Again, very similar to DPC.NZ. But if you're looking to buy a small or medium parcel; maybe $2,000 or $3,000 up to maybe around $10,000 to $20,000 and are then prepared to sit back enjoying the high dividends and a better than average chance of capital gains, AFC's financials look attractive imho.

David, yes. The microcap world is an interesting one. No coverage from analysts because it's not worth their co's time. As Dimebag has said several times, it's here that we stand a better than average chance of finding stocks that, over a few years, have the potential to become 10 baggers. Such stocks can make a startling difference to our investment performance.

One of the many features I like about AFC is that, despite its micro-cap status, we've got impressive historical data such as the charts in my first post, establishing that there is already a track record of strong growth.

Readers are reminded to do their own research before risking their shirts investing in common stocks.

Hi Alban - I'd only had a quick look at the company's stats when I posted earlier. The growth curves you presented didn't seem to match the bottom line figures I had. Anyway the figures check out. I tend to look at EPS growth first and EPS doesn't show the same growth pattern as stats presented in the annual report because of dilution by new shares. Having said that EPS for the coming year almost matches that of last year just based on first half numbers alone so an upward trend in EPS is now be emerging. It worries me a bit when companies only highlight the flattering statistics - I'm sure if EPS was trending upward they would have highlighted that as well. It would have been good had they commented in the annual report on the dilution factor and prospects for further dilution rather than letting the punter work that out alone. I'm afraid I haven't got my head around the company as yet but that's not to say I'm not interested. I have a couple of smallcaps on my list at the moment to purchase as $s become available so just being a bit lazy at the moment with this one and keeping a close eye on all posts. I'm looking at picking up some more OTI as the price remains stable and also interested in AEN. I would have posted earlier on AFC but have been away.

all the best and may join you on this one at some stage

Hi KD,

Thanks for taking a look and spending time on this one.

As regards number of shares on issue, we have to be careful with our interpretation because the company floated on the stock exchange at the very end of the 2002 financial year.

The average number of shares used for the 2002 calculation of eps was about 16.5 million. This figure is the (highly distorting) weighted average of the number of shares on issue during 2002 - i.e from the pre-float beginning of the year (20,000 shares) until the (post-float) end of the year 37.5 million shares.

A fairer way perhaps (although I could be wrong [8)]) of looking at this is to assume there were 37.5 million shares on issue for the whole of 2002, 2003, 2004. Then we get:




Year......eps (cents)

2002......2.8

2003......3.5

2004(f)..5.1



This implies eps increased by 25% between 2002 and 2003 and will rise 46% between 2003 and 2004.

I believe the true difference is that, as a result of the stock exchange listing, AFC have an increased equity base of the order of $8.3 million spread over 37.5 million shares. i.e. the company is working with an increased capital base of 22 cps. This should continue to drive their expansion into Sydney and Brisbane leading to continued high growth. Considering we'll see 45% eps growth for this financial year, the capital deployment thus far appears to be satisfactory.

p.s. I'd be happy to hear your latest thoughts on OTI, KD - I see recently that lead has been dropped from a couple of industrial applications, which may ease some of the price pressures on lead for batteries. Are you aware of any developments? (The OTI thread will be a better place to discuss this though, in the interests of keeping the ASX threads more relevant than many of the NZX topics are becoming.)

:)

for what it is worth i reviewed the company in the following manner:

a. i include all options when considering shares on issue, conservative but thats the way i work. issued 37,700,000 + 1,500,000 options = 39,200,000 shares for my calculations.

b. full year 30/6/03 NPAT $1,331,292 = EPS of 3.4cps. a price of 42c equates to PE of 12.3

c. dividend for 30/6/03 was 2.5cps which is a net yield of 6% (2.5/42). also this dividend is fully franked at 30%, this doesn't help nz owners but does for aus holders. adding back franking credits (30/70*2.5=1.07; 1.07+2.5=3.57cps) 3.57/42=8.5% gross. this is a very good yield for aus holders.

d. the half year to 31/12/03 shows a NPAT of $1,225,781. the second half of year to 30/6/04 will be much lower; hard to know how much. however given half yr to 30/6/03 showed NPAT of $800,503 and full year to 30/6/03 NPAT was $1,331,292 the difference of $530,789 should be a very conservative estimate. on that basis a conservtiave full year NPAT for 30/6/04 could be $1,225,781+530,789=$1,756,570.

e. based on $1,756,570 EPS = 4.48 and PE (using 42c) = 9.4.

f. dividend has also increased to 3cps = 7.1% net (3/42) or gross for aus 10.2% (7.1/0.7). div yield alone should start to attract aus holders especially.

g. NTA per share of 31.3 (30/12/03) compares well to market of 42. not any rubbish in balance sheet (ie huge tax assets, intangibles etc).

i also look at some other points including:
- is the company actually paying tax in its cashflow; yes a reasonable sum. accounting magic will sometimes inflate profits but profits are never inflated when you are actually filing tax return.
- can the company grow without constant need for capital; it strikes me it can. therefore the high div payout ratio is sustainable going forward
- do the directors own many shares; yes the MD martin kane owns 17m or 45%, i like this. i do not see why i should invest if the directors particulary the ceo have not.
- risk management issues; with finance companies there is always the risk of default. i like the way that the insurance policy can be cancelled and premium refunded to AFC if payments are not made. this does not eliminate default risk but reduces it substanitally
- as an aside i did not put any value on the laptop/leasing side of business, this is not where the growth is.
- is the compnay widely followed; no it is not. this is a good attribute for us small investors.

in summary then AFC fits my buying criteria in terms of dividend + PE as well as the other attributes above. i have purchased on this basis. i hold long term and as you may have identified make decisions on the basis of underlying business. given that alban was good enough to bring this to my attention thought i would bore you all with my own workings.

THE KING says Well done pajama its the small Caps we need they only Go up.
[8D]

Regards THE KING

thanking you all for these last posts - Alban - you have eased my frustration with the EPS - your analysis makes sense and I think this is the way to treat the number of shares on issue - agree with Pajama with regard to factoring in the options. As you are aware I'm relatively new to this game so appreciate your opinions on these matters. Pajama - your review is also much appreciated. I have reserved a place for AFC in my long-term portfolio and in meantime will do some more research.

Thanks also for the prompt on OTI - I shall post again shortly. I hold to my original statements on OTI - IMO it's one to accumulate for longer term. Price and current short-term issues provide a buying opportunity IMO but will comment more under appropriate thread in due course (too late at night now!).

cheers

hi guys

i found this on h/c and thought you may like a read, am also going to buy a small parcel because i like the companies prospects...cheers for everyones analyasis.

Interested to see your post and would certainly welcome any thoughts you might have on AFC.

I first researched this company at the time of the float and thought it looked good for a quick trade. Unfortunately, all the shares were taken by clients of the sponsoring broker leaving not a lot for the rest of us. It then came on my watchlist as it dropped below 40 cents and I managed to pick a few up around 36...

Obviously this is a small company with not a great deal of shares on issue, trades on small volume and has a substantial shareholder (~45%) being a company associated with Martin Kane the CEO. As such it doesnt have a lot of scope to publicise itself or its activities!

It has a great business with in-built revenue growth as it provides insurance premium funding. As companies insurance premiums go up (have a look at the charts of listed insurance companies on the ASX!), AFC's revenue goes up. It has also been very keen to expand into lease funding particularly with its diversification into the Eastern States.

This expansion and growth has come at a price. It has had to fork out for new systems and develop new client bases which take time and capital to do. Based on the half yearly results however, this investment is starting to pay off.

Rising interest rates are a threat, as this is how AFC finances its funding activities, but the cash generation is strong and management seems to have a good grip on the business. Although some of the forecasts prepared at prospectus time may have been a little fanciful!

I like to think AFC may come onto the radar screen of a small companies fund manager looking for some growth options once it has proven itself to be a stable earner. I think this years full financial statements may do this.

Anyway, just a few midday musings on a gloomy UK day! I will keep an eye out for your post...

Cheers

Merkin

Thanks for those comments guys.

Thank you for that masterful analysis pajama. My FY2004 profit estimate is around or a bit more than 5 cps because:

HY to Dec 2002 = $0.80 million. FY to June 2003 = $1.33 million.

HY to Dec 2003 = $1.226 million. FY to June 2004 = $ ????

HY2003/HY2002 = 1.226/0.80 = 1.5325.

FY June 2003 profit of $1.33 million multiplied by 1.5325 gives a FY2004 estimate of $2.04 million or 5.4 cps (37.5 mill shares) or 5.2 cps (39.2 mill shares).

Whatever the details, as you have pointed out, the shares provide a truly excellent dividend yield to Aussie holders, something I had not emphasised as it doesn't apply to me. It will, however, act as a driver to the share price.

Thank you again pajama - it's great to read analyses like yours. :)

thanks for kind words. yes i am probably being conservative in my estimate but thought that growth in 2H 2004 would be less than % achieved 2H 2003. if i can build some 'fat' into the analysis and it still looks ok i am happy.

It’s interesting to run through a dcf calculation of AFC’s value. I’ll follow pajama’s lead and be conservative.

I will use a FY2004 profit of $1,756,570 (rather than my expectation of around $2.0 million). I then calculate the earnings per share. Again, conservatively, I’ll fully dilute this figure by taking account of future share options and use 39,200,000 shares to get eps 2004 = 4.5 cps.

In the last few years, AFC’s earnings have grown rapidly. The worst year was 28% growth. So, again being conservative, I will assume halved profit growth of 14% p.a. for the next 5 years, after which growth falls to a meagre 2.75% p.a. (Yes, I’m being conservative!)

Now, what should we use as a discounting rate? As far as I can gather, Warren B. employs the govt. bond rate. According to Robert. G. Hagstrom’s “Essential Buffett” it seems that, if the govt. bond rate is less than 10%, Warren. B. raises the hurdle by using a discounting rate of 10%. So that’s what I’ll use.

Inputs:

Eps 4.5 cps
Profit growth over next 5 years: 14% pa
Profit growth thereafter: 2.75% pa
Discount Rate: 10%

Output:

AFC discount cash flow valuation = 101 cps.


The 101 cps valuation has been calculated using conservative inputs. With the current share price below 50 cps, I’d venture the opinion that our margin of safety in buying AFC is satisfactory.


Readers are reminded to do their own research before risking their shirts investing in common stocks.

alban i have not performed a DCF valuation but can't agrue with your approach. with MD Kane owning 47% (something i like) the downside is liquidity in short term. however one simply has to be patient and build a stake slowly and quietly. the micro cap nature of this company means it will not hit broker radar screens until it is much bigger (ie price has moved up 100%). at that time it will be a strong buy !!): i also belive the safety margin (or fat in my terms) is sound and offers adequate protection for long term investment. i thank you for bringing this company to my attention.

thereslifeafter87 said in the OTI thread:

Quote:

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quote:AFC doesn't really excite me.

While 17% ROE is good it is not great.

It does have a low valuation, but is in a novel area of business which I'm not too sure I understand.

---

Some Thoughts on ROE.

Return on equity is a very useful tool in financial analysis. Some caution is required in its interpretation. A 17% return on equity is above average - most companies would be envious. However, if we are being greedy (which we usually are when buying stocks,) let's assume that we are unimpressed by a 17% roe. Let's go as far as calling 17% a low return on equity.

So, why should AFC's roe be so 'low'? There can only be two reasons:

a. Its profit is lower than average.
b. Its equity is higher than average.

In AFC's case, its equity is in fact high for a finance company.

As Dimebag has pointed out to me, DPC has an equity ratio of 10%.

AFC has an equity ratio of 25%.

Why should AFC be carrying such high equity (2.5 times greater than DPC) so that its roe is depressed to a mere 17%? The reason is that AFC's equity has been boosted by the money that came in as a result of the recent stock market float. (Similary, in the absence of further expansion, DPC's equity ratio will grow when the warrants are converted - leading to a fall in DPC's roe, until it can successfully deploy the newly funded equity.)

AFC believes their IPF business can now grow significantly without any further investment. Part of the reason for this is their already high equity available to fund expansion. AFC has the equity of a financial services company more than two times its current size. My own belief, given AFC's existing track record, is that profit will grow to reflect equity.


Readers are reminded to do their own research before risking their shirts investing in common stocks.

Alban - very helpful.

cheers

Thanks Alban..

As I haven't done in depth research on AFC I hadn't factored that in.

Very helpful...

It could be possible that AFC achieve a 25% + roe in the next few years.

Alban Just check that that amount of equity is not an Australian Govt requirement because of the risk in it's lending. NAB was recently forced to increase equity by 3 billion dollars (according to news reports)to cover more of it's risk. I hope I have worded this correctly so you can understand.

AFC is not a deposit taking institution, therefore its gearing is not regulated like a bank. AFC can gear itself to a level that its fianciers are prepared to lend against. I would think that this would be higher than its current gearing, leaving scope for an increase in ROE this year and next.

cheers
mark

AFC shareprice has now broken through resistance at 45c. Today's close 48c.

Thanks for bringing this to attention Alban !

I read thru the fine work you and pajama posted here and went through the statements on AFC's website last month and picked up a few @42c.

I got a few too @.42 and still want to double up if it comes back.
Thanks for you excellant work Alban!

Is it significant on such small volume???? 3,500 shares
Havn't seen the buy/sell sides and how they stack up

Cheers skinny and clearasmud. :)

CAM, thanks for giving me the opportunity to clarify my brief statement.

In its 10 month uptrend AFC had not previously managed a close above 45c. On Thursday AFC broke through 45c to close at 45.5c on good volume (for AFC). On Friday it advanced further to 48c on small volume.

Placing this in context, although the AFC price had closed at 45c on five previous occasions in recent months, observers of the price action will have noted that a generous supply of shares always became available at or around 45c. A few days ago, however, I noted that all sellers below 50c took their shares off the market in the space of one day. You may draw whatever conclusions you wish to from this.

Gradually, one or two smaller-scale sellers reappeared at around 45c but they have now been taken out.

AFC is in a confirmed uptrend and has closed for two days in a row above a formerly very strong resistance level. I believe AFC's fundamentals, as outlined in the previous pages, will carry it to significantly higher prices within an achievable timeframe for all but the most impatient of investors. I'm happy to enjoy the ride.

Readers are reminded to do their own research before risking their shirts investing in common stocks.

Good to see the price settling firmly above the old resistance level. :) On a variety of forward outlooks, I'm currently working on the basis that the AFC price in one year's time will be somewhere between 65 cps and 75 cps.

Quote:

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quote:Originally posted by Alban


FY June 2003 profit of $1.33 million multiplied by 1.5325 gives a FY2004 estimate of $2.04 million or 5.4 cps (37.5 mill shares) or 5.2 cps (39.2 mill shares).

---

Unaudited results for the 6 months to June 2004 were released today.

New lending $209 million, up 67%
Total revenue $11.4 million, up 63%

Full year profit will be in excess of $2 million. So it looks as if profit will be at the top end of our expecations rather than at the more conservative end.

As we expected, because of the high existing equity, the MD, Martin Kane states that they are confident of accomodating further growth without any significant rises in existing overheads.

Hi Alban,
First of all thank you for bringing AFC to our attention. I bought a sizable stake in April at 44.5 cents and todays unaudited results want me to buy more. I love the growth story with sound management. Without looking to hard, do you know what the dividend forecast is for this year and if they finally implemented a dividend reinvestment plan?

Well done Alban!

Your forecast in the post 11/04 looks spot on, i.e. EPS of around 5.2c. This implies a p/e of only around 9.5 on todays share price....now that AFC seem to have delivered the goods for the 2nd half-year we should see a decent multiple expansion over the next few weeks [:p]

Well done Alban on your projected profit estimate (and for identifying AFC in first instance).
It would seem their earnings are around 60% in first half (up to 31/12) and 40% in second half (up to 30/6), at least this seems to be the ratio for last couple of years.
The current price of around 50 (although this may well track up following yesterdays annoucement) places the coy on an undemanding PE of 9.8 (using my shares of 39.2m) [ie 2m/39.2m=5.1 and 50/5.1=9.8] as I see it.
The dividend policy as per their intial listing documentation was 60% of earnings so this may suggest 3cps for this year. This is 6% net (to us NZ holders) or 8.5% gross for our Australian friends.
Since listing AFC has grown signficantly and probaly justifies a higher PE ratio than 10.
FY 30/06/02 profit was 1.0m (2.7cps) [5.4m sales]
FY 30/06/03 profit was 1.3m (3.4cps) [7.0]
FY 30/06/04 profit est 2.0m (5.1cps) [11.4]
As I see it the EPS growth has been some 45% between 2003 and 2004 years. Between 2002 and 2003 was 30%. The short time frames invloved mean care is required in interpreting the figures but none the less this is not the growth path of your traditional low PE company.
It should be noted the EPS for 2002 year shows as some 6.5cps in annual accounts because weighted average shares on issue was 16.0m. This is my view is nonsense and I have restated EPS accordingly; the weighted avge shares number is confused by the IPO during 2002 year and to use this number is meaningless in my view. [ie as the shares were issued part way during year only part of shares are counted as - typical accounting standards confusion for shareholders]
Of course when you are starting from a low base it is much easier to grow than when you are a large business already.
Another point of some interest is the ratio of NPAT to Sales. This has ranged from 11-19% from 2001-2004 and has averaged approx 17% for last 3yrs. This is a very sound ratio which they have done well to maintain as the sales increased from 5.4m to 11.4m. Normally as revenue (and costs) grow it becomes harder to maintian the profit/sales ratio but AFC have pretty much managed this. A credible acheivement in my experience.
I think the company could quite easily increase the dividend payout ratio from 60% to say 70% perhaps more with out much trouble. The core business does not need constant reinvestment as many do which is a positive re potential free cash flow.
The growth in revenue of 63% is going to be hard to repeat going forward. If though we take a conserative approach of say 30% growth into 2005 year [which on past performance looks possible] then sales could be $15m for 2005 [$11.4 x 1.30]. If we further assume they can maintain the 17% NPAT/Sales ratio [which will get harder for them to hold] a 2005 profit of $2.550m is possible. This would be 6.5cps which using a PE of 10 suggests value of 65c. I think if they achive these sort of numbers then a PE of say 15 would be justified and perhaps 97c possible.
These are all just my thoughts and obviously there are a lot of assumptions. This time next year we will see if I can get these things as accurate as Alban.

And it's off
nothing on the sell at the mo

Cheers
Slam

I'm so pleased I doubled up today at 50c. You got to love the enthusiasm of the MD

Yes indeed, a nice ride

Cheers
Slam

Yes a great ride but I'm majorly bummed - had an order sitting in there at 50c and it didn't go through. Sometimes being outside the Oz trading timezone is really a pain [xx(]

From HC:

Subject re: + + data and comments + +
Posted 02/04/04 19:40 - 54 reads
Posted by stolwyk
Post #269174 - in reply to msg. #269164 - splitview

Insurance Premium Funding (IPF) is BIG business:

From "Alban", Sharetrader:
Hunter “Hunter is the largest, most experienced premium funder in Australia and New Zealand with an annual turnover well exceeding one billion dollars.” (Compare with AFC rough forecast revenue for FY 2004 of $200 million):

http://www.hpf.com.au/internet/hpf.nsf/docs/About
_________________________________

Comment: The first 6 months showed a profit of $1.23 mill.
I would rate the full year's profit at about $2.15 mill or 5.66 cents/share (38 mill shares).

At the current price, the prospective P/E= 7.2

Gerry
Readers, please do your own research and you decide if and when to buy, hold or sell any stocks.

Gerry on a closing share price of 54 cents that would be a forward PE of around 9.5 based on your profit estimate of 2.15m.

Quite undemanding giving their (potential) growth prospects and risk profile but equally probably fair value in light of their micro cap status as well.

Annual Announcement:
http://stocknessmonster.com/news-ite...E=ASX&N=267436

NPAT: $2.16 mill (My guided forecast: $2.15 mill). E/S: 5.74 cents

Final div: 1.6 cents. Total div: 3.1 cents compared wityh 2.5 cents last year.


MEDIA RELEASE re Preliminary Final Results:
http://stocknessmonster.com/news-ite...E=ASX&N=267437

good announcement I thought (shocking timing though - great opportunity to get some press etc coverage for a small company, and they annaounce at 6-48pm AEST - I know they are WA-based, but really. Maybe they don't want the coverage?).

The comentary was pretty positive too, I thought. Other products seemed encouraging, and Hong Kong suggests further upside potential. I liked the comments about investiugating new business venture opportunities to "broaden the income base, improve scalability" - that to my untrained eye us exactly what AFC's strategic imperatives ought to be.

I like this company and i like their announcement. Outlook seems positive and it probably only takes some media coverage to put a rocket under the shareprice.

I have increased my holding today and maybe will continue to buy if price stays level.

discl. hold AFC

Quote:

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quote:Originally posted by James K

good announcement I thought (shocking timing though - great opportunity to get some press etc coverage for a small company, and they annaounce at 6-48pm AEST - I know they are WA-based, but really. Maybe they don't want the coverage?).

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The shareprice is really in a slumber. Volume has picked up a bit but without any coverage it is hard to move the price. Anyway, its my biggest holding in Australia and I am sure that it AFC will reward me in the long run.

discl. hold AFC

Yeah,

I'm flying bogey with you on this one Cantab: AFC was my pick too....instead of CCP--(so to date Full Marks to Dimebag and his band of merry wealthy men!!)...:):)[8D]

I believe, like you that AFC has got "undervalued intrinsically" written all over it. By the way, nice to quietly note that OTI has not fallen into the abyss, still holding up quite well at around the 15 -16 range...some guidance from the co. is probably most keenly looked forward to by all holders....Also nice to se ATR move up a few nice percentage points, BEFORE the release of the Final accounts... I'll put another annotation onto the ATR thread, in terms of what the "crownie pub" guys were vaguely rumoured to overhear in a min..[;)

Kind regards,
Robbo.]

Quote:

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quote:Originally posted by cantab

AFC looks cheap, at 55c selling on a historical PE of 9.6 and cum a 1.6c dividend. Not bad for a company that grew both revenues and profits 63% in 2004!

Not many sellers remaining.

Disc hold.

Cantab

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My one problem with AFC is the lack of a decent return on equity.

I like companys that earn over 20% on assets.
AFC has had two years to deploy the equity generated from its capital raising, yet it is still earning sub-par returns.

Although its margins are good, this has not translated into a high ROE. Perhaps they are under-geared? I don't know enough about the business to say...

Any comments?

Cantab,

I accepted Albans point then as I thought AFC had raised a lot of equity relatively recently.

However, they have not had any new capital inflow for more than 2 years. Surely this equity should be well deployed by now?

Also, they have similar levels of gearing to DPC, although their margins are better. However, they have a lower ROE...

This all doesn't seem to compute well..

I hope you're right Cantab.

good luck to holders

TLA87

You state:

"Also, they have similar levels of gearing to DPC, although their margins are better. However, they have a lower ROE..."

This is not correct.

AFC's equity ratio, based on their latest financials, is 21%. This means for every $1.00 of assets AFC has on the books, $0.21 is funded by equity and $0.79 by debt.

I don't have the exact figures on hand, but DPC's equity ratio is below 10%. This means that AFC could more than double the loans it finances without needing utilise more equity (retained earnings or otherwise), and still have a higher equity ratio than DPC. More assets mean more profits with the same amount of equity. The slack built into their balance sheet thus provides them with the capacity to grow and increse profitability over the coming years without needed to ask shareholders for more cash.

In terms of AFC "deploying" the equity, it is more a matter or growing market share and finding new loans to finance. All the equity has been "deployed" - the simply haven't yet utilised their balance sheet to their full extent.

AFC's current ratio of 21% compares with 28% at year end FY2003, and 25% at interim 2004. Accordingly, assets financed grew 45% from $40.8m to $59.2m.

So obviously AFC are continuing to grow and use up the "slack" built into their balance sheet. This should trend towards 10-15% over the coming years, and, as a consequence, profitability and ROE should rise nicely.

But even with such a conservative ratio of 21% (average of 24% during the year), it is not like AFC are earnings a mediocre amount on equity. They made 19% last year which is very good - most companies would be more than satisfied with such a good return & without utlilising much "leverage".

AFC seem a quality small cap which I'm happy to own.

Cheers
Dimebag (Has a small holding in AFC @ $0.45).

Dimebag,

Nice post, good analysis.

I guess the question is then, how much slack is built into AFC's balance sheet? How much will they gear up?

Considering they are lending to businesses who want to pay insurance costs with the proceeds, their loans might be considered higher risk would you say? In that case they probably would not want to gear at high ratios....

Perhaps a good question to ask management at the AGM "How low would you allow your equity ratio to go?"

This could provide a good clue as to future growth...

Quote:

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quote:Originally posted by thereslifeafter87

Dimebag,

Nice post, good analysis.

Considering they are lending to businesses who want to pay insurance costs with the proceeds, their loans might be considered higher risk would you say? In that case they probably would not want to gear at high ratios....

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An interesting point TLA87 and one that is often misunderstood with premium funders. If a loan goes into default they just approach the insurance company and have the policy cancelled from the point of non payment (i.e. the cancellation is back-dated) and so the refund is pro-rata'd from the same point. So the only capital risk is that you might have paid an insurer like HIH who is unable to effect a refund. The income risk is highly sensitve to your back office efficiencies - I.E. How quickly can you cancel a policy and get a refund as you are no longer receiving an income but still paying your interest outgoings.

Additionally, measuring lending ratios with a premium funder is not the same as a regular finance company either. Financing is lumpy because the loans are for such short periods. This means by balance date the loan portfolio size may not resemble what it did at the peak of demand.

As an example: Premium funders typically operate through brokers. Brokers arrange a disproportionate quantity of renewals to conicide with the period ending just prior their client's tax year, generally June in Australia. Brokers usually have somewhere between 45 and 90 days to settle with the underwriter. This means peak financing demand would hit an Australian premium funder 1 to 3 months after June. These loans can be for periods ranging from 3 to 12 months (there are a few circumstances where it could go longer but this is for highly unusual insurance policies and would not be typical).

So for AFC the balance sheet at year end does not reflect the demands that have been placed on it through the year. In fact based on $200m in premium lending and 12m equity, equity ratios might have fallen as low as 6% depending on timings. Countering this is the low risk nature of the lending: Capital risk is low and spread through a range of clients (although concentrated with a smaller number of underwriters).

Thanks for that Halebop,
very interesting...

Time for my first ever TA prediction.

I've just been reading a book on it for giggles, so lets see if it works (or if i can apply it correctly :-) )

AFC looks as though it has started a short term uptrend. If it breaks resistance at .58/.59 then it will be in a medium term uptrend and will have broken out of the consolidation zone.

Now is probably a good time to buy based on TA signals...

Quote:

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quote:Originally posted by Halebop

Quote:

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quote:Originally posted by thereslifeafter87

Dimebag,

Nice post, good analysis.

Considering they are lending to businesses who want to pay insurance costs with the proceeds, their loans might be considered higher risk would you say? In that case they probably would not want to gear at high ratios....

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An interesting point TLA87 and one that is often misunderstood with premium funders. If a loan goes into default they just approach the insurance company and have the policy cancelled from the point of non payment (i.e. the cancellation is back-dated) and so the refund is pro-rata'd from the same point. So the only capital risk is that you might have paid an insurer like HIH who is unable to effect a refund. The income risk is highly sensitve to your back office efficiencies - I.E. How quickly can you cancel a policy and get a refund as you are no longer receiving an income but still paying your interest outgoings.

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Good comments HB - this gels with the emphasis AFC place on their IT and delivery systems in their annual report. The advantage they stress (not surprisingly!) differs, i.e. that it provides an intergrated interface with whatever systems insurance brokers have so its easier for them to get quotes and print documents at point of sale.

A comment that intrigued me in the annual report was that they expect to ride out increasing competition in insurance premium funding because insurance brokers will continue to have the confidence dealing with them as they are the only independent premium funding operation (i.e. they are non affiliated with any particular insurance underwriter).

This sounds like a fairly substantive point, but I don't know enough about the industry to evaluate it. HB or anyone else?


TLA87 - I first bough AFC at 42c, bought some more at the release of their annual report to June at 58c, and have bought still more recently in the 52-56c range. I hope you're right about the break out ;)

Has started a new upmove from correction but would like to see a break above 60c to confirm this otherwise may turn into a consolidation at the highs which is generally bullish anyway just takes a bit longer for the up trend to resume.

Quote:

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quote:Originally posted by skinny

Good comments HB - this gels with the emphasis AFC place on their IT

A comment that intrigued me in the annual report was that they expect to ride out increasing competition in insurance premium funding because insurance brokers will continue to have the confidence dealing with them as they are the only independent premium funding operation (i.e. they are non affiliated with any particular insurance underwriter).

This sounds like a fairly substantive point, but I don't know enough about the industry to evaluate it. HB or anyone else?

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Hey Skinny,

I've usually worked / consulted for the broker's love/hate partner: the "underwriter".

From a New Zealand perspective brokers are very concerned about consolidation of underwriters - before they started casting themselves as "Risk Managers" the number one benefit of dealing with a broker was that they could shortcut the quoting process for the client while hopefully understanding the strengths and weaknesses of the various offers. Now however, with a diminishing pool of underwriters who deal via intermediaries (and new rumours of a QBE/IAG merge) brokers and a growing number of their clients know there isn't much choice anyway.

Consequently, the brokers want to maintain as much control over their client's as possible: They have a fit when the underwriter approaches the client directly - some don't even want you to do it during the claim process which results in inefficiently using the "go between" at each juncture. They protect their client data - not giving the underwriter any contact details for the client bar the "Situation of Risk".

This is a systemic exploit available to AFC and a very real competitive advantage over the underwriter owned premium funders. I don't know how they compare on service, price and offering but if they are as good as the main competition then they are affectively more competitive. Still, the corporate world is littered with the carcasses of small companies who took on the established players. Dominant market share should not be understimated and I suspect AFC needs a few more runs on the board to justify a growth mulitple that it's current operating results may seem to deserve ...and there lies the arbitrage opportunity and risks of buying AFC now...

I think Bull has called it right, with resistance apparent at 60c.

A break above that should signal the start of a new uptrend.

Not that I know much about TA or would ever use it to justify an investment decision :-)

Cantab
Read that book a few times, found it good to get the basics and helped establish a few TA rules.
Not to hard a read either.

Let me know what you think
Cheers
Slam

Quote:

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quote:Originally posted by Halebop
....This is a systemic exploit available to AFC and a very real competitive advantage over the underwriter owned premium funders. I don't know how they compare on service, price and offering but if they are as good as the main competition then they are affectively more competitive. Still, the corporate world is littered with the carcasses of small companies who took on the established players. Dominant market share should not be understimated and I suspect AFC needs a few more runs on the board to justify a growth mulitple that it's current operating results may seem to deserve ...and there lies the arbitrage opportunity and risks of buying AFC now...

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Thanks for the run down on the industry HB, I think I see the picture. Interesting. The Economist ran a survey article on underwriters (or was it just Lloyds?) a few weeks back now where their lack of IT development was seen as a real weakness. Lets hope AFC can exploit the arbitrage opportunity for a wee while yet!

I think their start up in HK will be well worth watching too - if the business model is successful across countries its another factor that should demand a re-rating of the multiple. Not only because of the increased market scope, but also because I 'spose the independent source of revenues will provide AFC with a bit of room should the Oz underwriters start undercutting AFC (possibly at a loss) at some point in the future to try and win back market share.

Hi All
Just thought I'd share this with you.
After inquiring about my holding, I got an email from Derrice Dillon, one of the Drectors of AFC the other day. ( nice to see a director replying;)) Then I got an email from Martin Kane, Managing Director. They were interested in how I came across the Company, being from NZ, and wondered if a broker over here was recommending them. AFC had noticed an increase in NZ shareholders over the last 6 months.
I refereed him to this thread. Martin had a look and was very interested in the opinions offered.
Just thought you would like to know, what is said here can be taken in by AFC, which can only be good imo, for them to here what some of the small and not so small holders think.

Cheers
Slam

Quote:

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quote:Originally posted by skinny

I think their start up in HK will be well worth watching too - if the business model is successful across countries its another factor that should demand a re-rating of the multiple. Not only because of the increased market scope, but also because I 'spose the independent source of revenues will provide AFC with a bit of room should the Oz underwriters start undercutting AFC (possibly at a loss) at some point in the future to try and win back market share.

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Good point on the HK expansion Skinny. Hopefully the business translates in other markets/cultures etc.

Well could this be the break higher coming no sellers under 60c at the moment lets hope so.

The depth chart is one of the most unbalanced ones I've seen in a while: 338,000 buy bids, only 33,000 sells and 10,000 of them are @60c. Even if the price doesn't break out any time soon I'm certainly not going to lose any sleep over my AFC holdings :D

Looks like this will hold nicely after going XD today and no sign of pressure yet.
May take on an upward trend soon me thinks.[8D]

Cheers
Slam

Any move above 61 should see it take off...

Quote:

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quote:Originally posted by cantab

Pretty lopsided depth chart with 416k to buy and 4k to sell. Buyer at 60c, seller at 63c. [:p]

Cantab

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Now only one seller of a measly 1900 shares at 69c [:p]
Well done to everyone who bought tickets for this train and thanks again to our conductor Alban :)

ROE increased from 3.5 in 2003 to 5.7 in 2004!

Excellent growth.

Crusader

I'm not sure if you mean Return on Equity Crusader.

2004 Earnings $2.164m
2003 Equity $11.432m
Therefore ROE 2.164 / 11.432 = 18.93%

Return on Average equity would be a little lower but not by much.

You mean earnings per share

EPS was 3.5 03 and 5.7 in 04.

Regards,

Sauce [}:)]

Thanks for correcting me sauce. Posted on the run in Melbourne... good result nonetheless.

Crusader

Some coments below from AGM 28/10/04 Press Release

With regard to Profit outlook
- "With regard to first quarter, currently on track and are achieving this years forecasts".
- "Not forecasting any real impact on our results from Hong Kong this financial year".
- Appointed 4 (currently 2) new asset finance specialists to asset finance division. Aim to add additional services to existing clients (primarily education providers) and target new clients (small and large business enterprises). "May be some short term costs associated with establishing the business in current financial year."

General
- Increasingly competitive market
- Board recognises risks associated with heavy exposure to one market sector and one geographical market. Currently investigating a number of new business opportunities.

If we take management guidance that EPS will grow this year but not at the 65% growth rate of 2004 and assume 36% in 2005 coming down to 30% in 2006 and if we assume management continue their stated policy of paying 60% of profits in dividends, we get the following set of forcast figures for AFC. It is still a high growth and low PE preposition at the current price of 60c.

F/Y NPAT EPS %Chg DPS Yield PER
12/2004(a) 2.2 5.7 65% 3.1 7.7% 10.9
12/2005(f) 3.0 7.9 36% 4.6 7.7% 7.6
12/2006(f) 3.9 10.3 30% 6.0 10.0% 5.8

Also, the new appointments of 4 asset finance specialists is a significant investment in front office staff for AFC considering they had a total of 15 staff members for 2004. It shows the management is getting serious about the asset finance division as it aims to target new clients.

The insurance premium funding business is going to be expanded in Hong Kong following a similar move made by Australia's largest IP Funder (Pacific Premium Funding Ltd) in 2003:
http://www.jltasia.com/pressroom/new...ficPremium.htm

Slow and steady as she goes.

Sneaking up over the last few days and through previous resistance.

As other posts suggest still fairly priced at these levels.

DIRECTORS’ REPORT
FOR THE HALF YEAR ENDED 31 DECEMBER 2004
The directors of Alliance Finance Corporation Limited submit their report for the half year ended 31
December 2004.
Directors
The names of the company’s directors in office during the half year and until the date of this report
are as below.
John W. Saleeba (Chairman)
Martin Kane (Managing Director)
Derrice Dillon (Executive Director)
Peter Leonhardt (Non Executive Director)
All directors were in office for the entire period.
Review and Results of Operations
Lending for the Half Year to 31 December 2004 again exceeded all previous comparative figures.
The total value of loans written was $140 million, representing a 9% increase over the first half of
Financial Year 2003, which itself was a 91% increase on the previous year. Whilst the increase in
value is relatively modest in comparison with recent growth trends in Alliance, the increase in the
volume of loan numbers written was certainly significant, being 35% more than last year.
Efficient and scalable processing systems, together with a rapid and enthusiastic take-up by
brokers of the Company’s internet-based quotation system for premium funding business has
allowed Alliance to handle this large growth in volume with no additions to its administrative and
processing staff. In fact no additional processing staff have been added since late in 2002.
The majority of new lending during the Half Year was for the funding of insurance premiums, since
the major part of the Company’s asset finance business, the funding of school notebook
computers, tends to be concentrated in the third quarter of the Financial Year. The establishment
of new branch offices in Sydney, Melbourne and Brisbane some eighteen months ago has been
successful, with the proportion of premium funding loans originating from outside Western
Australia rising from 28% in the first half of Financial Year 2004 to 44% during the last six months.
Total revenue at $7.57 million was 29% higher than the previous corresponding period, and, given
that the value of new lending rose only by 9%, this demonstrates that the average yield on the
business written was considerably higher than last year, which was affected by a few high-value,
low-margin loans.
Profit after tax was almost $1.5 million, which is 22% higher than last year. However it should be
noted that this profit figure is also after additional overhead expenses associated with establishing
and operating new business initiatives, which have generated negligible income during the six
month period.
PAGE 4
As outlined in the Managing Director’s address at the AGM, a strategic decision was taken to
initiate an expansion of Alliance’s asset finance activities. This was commenced in
September/October 2004 with the employment of four additional asset finance specialists, three in
Melbourne and one in Sydney, and the associated expansion of office facilities and infrastructure
in those centres. This initiative, which is expected to generate significant new lending business
over future years, has resulted in minimal contribution to lending and revenue figures for the Half
Year but has added to overhead expenses for the period.
As reported in the 2004 Annual Report a subsidiary has been incorporated and a small insurance
premium funding operation is being established in Hong Kong. During the Half Year costs were
incurred to establish the necessary bank facilities and to modify internal systems and software in
preparation for commencement of business. Investment in this initiative will be kept to minimum
until business levels can be more accurately assessed from preliminary trading.
Similarly, a corporate entity has been established as a wholly owned subsidiary in New Zealand in
preparation for commencing a small-scale finance operation in that market later this calendar year.
This also resulted in some additional legal expenses and associated costs.
The Directors have undertaken a review of the Company’s dividend policy and have resolved to
raise the maximum p

Perversely I was a little dissapointed in the result. For no particular reason I had arbitarily assumed 30% growth in NPAT.

However in broad details the results appears solid. Asset growth of 9% is reasonable, particularly as they gain economies.

Operating cashflow was worse (down 5% from 1.792m to 1.696m) but still exceeded profits which is a good sign.

Hopefully the provision for higher dividends is a vote of confidence in improved performance rather than a lack of alternate growth opporunities. Interesting that they also singled NZ out for expansion of premium funding. Not a big market here but also not many players.

Given their microcap status I suspect they are still fairly priced at present and another good half yearly result (or three) would be required for an upwards re-rating.

Happy to patiently hold.

Hi guys,

Looking at the bigger picture, the result is excellent. The growth from this business is yet to emerge. The asset finance business is still in its infancy and has incurred costs which affected operating cashflow slightly. These are short term issues. Asset finance is at the moment largely just funding school notebooks. This will change and move into other areas. Check out www.e-finance.com.au to see what this business might look like in the future.

The IPF business is an excellent business. The loan book keeps growing on recurring applications. NPAT for the half was approx. $1.5M. Again IPF was the major profit contributor and net profit margins were 19.7%, up from 18.9%. These are great margins. ROE is up also. And the business is expanding into HK and NZ. There is a lot of growth ahead for AFC.

The DRP is good for us L/T shareholders and the increased dividend payout shows management is confident about the future.

All in all, AFC is an excellent little company that will cotinue to grow earnings and the PE will keep expanding. As the ROE grows and the dividends are re-invested, this investment will pay off handsomely in the future.

I agree jebigabre. It can be hard to get these little puppies but I am hoping to top up and shelve.


Regards,

Sauce [}:)]

Markets are funny things. Hit 73c and then some heavy selling brought it down to 65c, ive picked up a few more of these little morsels, glad i didnt chase it up this morning. Big turnover today compared to hardly any action after the anouncement yesterday.

Great value at 65c.

Regards,

Sauce [}:)]

Small shareholders pushed it up and then a big holder wanted out and used the report to sell into. It would be interesting if someone could post all the trades today and the amount/price they went through.

PS. The report came out last night after the close of trading.

Agreed Cantab. Future performance still looks optimistic at this point but I feel the same concerns as you.

Some uncharacteristic volume today. Wonder if any of the insiders were involved on the sell side?

Hi AFCers

Yes agree - wasn't a bad report, but have similar reservations with respect to the amended dividend policy.

As a NZ resident, I am frustrated by dividend reinvestment plans, because they are a painfully tax-inefficient means of funding a company's growth. When a DRIP is in place, the "dividend" is in reality an illusion. What it really is is a small return of capital. Holders that do not elect to reinvest their portion are instantly diluted.

Holders believing in the long-term future of the enterprise, and who therefore wish to retain their stake intact, must elect to reinvest their dividends (at least to the extend to which other holders, in aggregage, take up their portion). Furthermore, the discount structure that often accompanies such schemes adds further compulsion to take up the offer, lest wealth be transferred away from the dividend recipient to the DRIP holder.

NZ holders (or any non-Australian holders for that matter), must pay tax on those dividends - even if they elect to reinvest their full entitlement. The exercise is not so destructive in Australia, where the franking credits may be utilised to offset personal income, but even still, holders with marginal tax rates above 30% will be disadvantaged.

What it all adds up to is a frustrating exercise in capital management that accomplishes little but often costs a lot. The fact is that the finance business is a capital intensive one, and a cynic might be tempted to conclude that the 80% "payout" ratio is something of a red-herring - targeted to distract investors from the real effect of what it happening: a lowering of cash dividends to reflect the ongoing capital needs of the business.

WIth the performance of the company continuing to impress, with growth opportunities abound, one does wonder why the need to pay dividends is seen as so compelling among managers. Presumably there is a widespread belief that you will ulimately increase your share price, and consequently lower your cost of equity capital, if you pay liberal dividends. I'm not sure if I'm convinced personally.

In fact, I'm almost tempted to begin making a low payout ratio a criterion of my investment method. Most of my best investments have been low/no dividend stocks. There is much to be said for it, if the company is indeed a good one with good growth opportunities, and this would especially be the case if the market does in fact apply a discount to such companies.

The fact is that a young growth company often has far more attractive internal investment opportunities than cash. Even retaining 100% of earnings is often insufficient to allow the company to accomplish its potential. The idea that companies like AFC have excess capital to distribute, especially to the point of distributing 80% of earnings, is ludicrous. Its an exercise in futility. Making it a requirement that the company pay zero dividends (again, provided it is a genine growth company with plentiful opportunity for attractive internal reinvestment) would at least attract you to companies with evidenced rationality in capital management. I have some reservations with AFC in this regard and this takes the gloss off the stock.

But agree wih the general sentiment that the underlying result itself was quite satisfactory. Looks like they have moved more towards lower volume, high margin business during the period, rendering the headline 9% volume growth an understated metric (in terms of measuring the company's growth).

At $0.65 is at 10.1x historic earnings suggesting reasonable value still exists at current prices.

Regards
Dimebag

I don't believe in dividends anywhere but feel they should be buying up shares instead.

Gerry

Regarding the placement: people sell for all sorts of reasons, and large block traders in stocks as illiquid as AFC generally must take what liquidity they can get when they can get it.

A strong announcement is precisely the time when sizable buyers may emerge. There is a buyer for every seller and it doesn't mean a whole lot to the long-term investor, in my opinion.

My feelings are (and this is necessarily a guess) AFC will trade around 70 range for a while, after trading ex-dividend. Including the dividend, that is still up 20.8% YTD - nothing to sneeze at.

Regards
Dimebag

PS

One thing I do particularly like about AFC is that it is not reluctant to invest in its future at the expense of short-term results.

It is good to see a small company willing to take on added costs in the short-term to drive longer-term growth initiatives (provided, of course, that they are financially attractive).

Dimebag

For NZ residents like me, I would like to know the pros and cons of AFC vs NZF and AFC vs SGL, both small finance companies based out of New Zealand where we can use the imputation credits.

K1W1 read the australian financial review weekend edition 19/20 feb and make your own decisions. Personally after reading their prospetuses and financial papers comments about most of them. I will not have term deposits with them or buy shares in them.

Announcement out

Looks like "River Capital" were the buyers of the 723k shares that went through after the 1/2 year announcement.

Takes their total holding up to 2.3m shares or (6.2% of the company)

Wonder who the seller was?

closed at 75c, sellers have dropped away completely today.

Finally moving a bit after its great result on the 17th.

"The cheques in the mail" as well if i remember rightly.

Regards,

Sauce [}:)]

Looks like this one is finally getting the recognition it deserves.

still in my view very undervalued

I've sold my modest holding. I think this company has great potential. I personally think the valuation is now well within fair range (and perhaps a little pricey for a microcap) but I'm sure time will prove the price acceptable all the same.

You sure your holding was "modest", Halebop? Price seems to have gone straight up since the overhang of that big seller was cleared!

Appreciated your posts on this. Hope you keen an eye on AFC, not without risk, but has the potential to grow quickly IMO, and I assume there must always be a chance of a bid.

I'm looking to buy back in when the price cools down.

Quote:

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quote:Originally posted by James K

You sure your holding was "modest", Halebop? Price seems to have gone straight up since the overhang of that big seller was cleared!

Appreciated your posts on this. Hope you keen an eye on AFC, not without risk, but has the potential to grow quickly IMO, and I assume there must always be a chance of a bid.

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Cheers James K. ...and there you go, it must have been ClearAsMud! I know AFC is thinly traded but trust me my holding wasn't going to move markets.

This company is at a great point even with potential economic slow downs looming. Incremental growth flows straight to their bottom line which makes issues like expanding the Equipment Finance division (4 reps was it?) more affordable. If they can continue to expand the premium funding book at least as fast as equipment financing then this mitigates their risk profile as well. I feel the price has just got a little ahead of itself but wouldn't be surprised if it rose still further. Not much on offer on the sell side right now at least.

Like ClearAsMud will look to re-enter on any weakness. Hopefully I get the chance. I have an even smaller holding in MAL which I'm at risk of being stopped out of already and other than that I'm fully cashed up but its burning a warm patch in my pocket. I'm out of new ideas at the moment which I think might indicate where the market is right now.

AFC just released a nice glossy containing their 1/2 year results. Its was essentially a rehash of what they reported last month. However its interesting to note that they changed their "outlook" statements slightly.

As issued on 17th Feb 05
Directors are anticipating a second half result approximating that of the corresponding period last year.

Issued today - 7th March
Overall we expect business and profit levels in the second half to approximate or exceed those of the previous corresponding period.